Canada’s Economy Gains Traction As Net Exports Surge: RBC Economics

Strong gains expected to continue through 2012

TORONTO, March 11, 2011 — On the back of solid net exports in the final quarter of
2010, Canadas economy finished the year on a high note recording stronger than
expected gains, according to the latest Economic Outlook released today by RBC
Economics.

The biggest support for the economy came from net exports, which added a full
4.5 percentage points to the quarterly growth rate. Continued consumer spending also
played a vital role in driving overall GDP, marking the fastest increase in spending since
late 2007.

RBC expects real GDP to increase at 3.2 per cent in 2011, as U.S. demand for
Canadian exports increases. Growth in 2012 is forecast to rise by 3.1 per cent.
We expect net exports to continue to bolster economic growth in 2011 and 2012,
as long as demand for motor vehicles and commodity-related products remains robust;
these industries account for two-thirds of Canadian goods sold abroad, said Craig
Wright, senior vice-president and chief economist, RBC.

A sharp rise in commodity prices will help maintain a strong Canadian dollar
throughout 2011, Wright stated. The strong dollar will support Canadian businesses
importing capital equipment to improve productivity growth.
RBC projects that the Bank of Canada will resume its tightening campaign in late
May and the overnight rate will rise from one per cent to two per cent by year-end. The
gradual pace of rate increases combined with anchored inflation expectations will result
in less upward pressure on long-term interest rates.

Labour market conditions will remain firm in 2011, according to the report, and
disposable income is expected to post a 4.1 per cent gain that will provide continued
support to consumer spending.

Consumers earlier confidence in taking on increasing amounts of debt was
based on a combination of lower interest rates, a strengthening labour market and a 4.6
per cent rise in disposable income, explained Wright. An expected slowing in the
housing market, rising interest rates and tightening mortgage lending standards all add
up to a levelling out in consumer debt relative to income.

At the provincial level, RBC forecasts Saskatchewan will lead the country in
growth this year. Alberta is expected to return to a top three placing, closely trailing
growth in Newfoundland and Labrador. Ontario and Manitoba will hover close to the
national average while both Quebec and British Columbia will fall slightly below. Nova
Scotia, New Brunswick and Prince Edward Island are still projected to lag behind at the
lower end of the scale for 2011.

RBC has remained optimistic on the U.S. economy, projecting firm growth of 3.4
per cent in 2011 and 3.6 percent in 2012. These expectations reflect the passage of the
tax cut package in December, continued labour market improvements, ultra-low interest
rates and tame underlying inflation (when measured in consumer prices).

A complete copy of the forecast is available as of 8 a.m.
ET, at
www.rbc.com/economics/market/pdf/fcst.pdf.
A separate publication, RBC Economics Provincial Outlook,
assesses the provinces according to economic growth, employment
growth, unemployment rates, retail sales and housing starts.